Auctions with heterogeneous entry costs

Diego Moreno () and John Wooders ()

Economics Working Papers from Universidad Carlos III, Departamento de Economía

Abstract: We study the impact of public and secret reserve prices in auctions where buyers have independent private values and heterogeneous entry costs. We find that in a standard auction the optimal (i.e., revenue maximizing) public reserve price is typically above the seller's value. Moreover, an appropriate entry fee together with a public reserve price equal to the seller's value generates greater revenue. Secret reserve prices, however, differ across auction formats. In a second-price sealed-bid auction the secret reserve price is above the optimal public reserve price; hence there is less entry, a smaller probability of sale, and both the seller revenue and the bidders' utility are less than with an optimal public reserve price. In contrast, in a first-price sealed-bid auction the secret reserve is equal to the seller's value, and the bidders' expected utility (seller revenue) is greater (less) than with an optimal public reserve price.

Keywords: Standard auctions; Endogenous entry; Heterogenous entry costs; Public reserve; Secret reserve (search for similar items in EconPapers)
Date: 2006-01
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Persistent link: http://EconPapers.repec.org/RePEc:cte:werepe:we061806

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